Insurance and Reinsurance in Ireland 2024

Insurance and Reinsurance in Ireland 2024

INSURANCE AND REINSURANCE 2024

IRELAND

Liam Flynn, Eoghan Ó’Móráin

(Mason Hayes & Curran LLP)

REGULATION

Regulatory agencies

1. Identify the regulatory agencies responsible for regulating insurance and reinsurance companies.

The Central Bank of Ireland (CBI) is responsible for the regulation and supervision of insurance and reinsurance companies operating in Ireland.

Formation and licensing

2. What are the requirements for formation and licensing of new insurance and reinsurance companies?

There are general Irish corporate law requirements for the formation of companies, and these apply generally to insurance and reinsurance firms. Any new insurance firm must be incorporated as a designated activity company (DAC) or as a public limited company (PLC). In practice, the DAC is the most common corporate vehicle used.

Any new insurance or reinsurance company will require regulatory authorization to operate in Ireland. For Irish-incorporated companies, this must be issued by the CBI. EU/European Economic Area (EEA)-incorporated and authorized insurers and reinsurers can also conduct business in Ireland on a branch or cross-border services basis after having complied with the requisite passporting notification procedures and must then comply with Ireland’s ‘general good’ legal and regulatory requirements, imposed consistently with the EU single market provisions.

Where authorization is sought from the CBI, the process typically commences with a preliminary meeting where the applicant firm presents its proposed business model to the CBI. Thereafter, the formal application pack is prepared and there are detailed checklists and guidance notes available from the CBI in this respect. It is usual for applicant firms to engage external legal and actuarial, and sometimes other, advisers to assist with aspects of the process.

Very broadly, the application pack comprises:

• information on the firm’s legal structure;
• information on the firm’s ownership structure;
• an overview of the firm’s broader group;
• details of the firm’s arrangements to ensure consumer protection, including adherence to the CBI’s Minimum Competency Code and Consumer Protection Code; and
• the firm’s:
• scheme of operations;
• system of governance including the fitness and probity of key personnel;
• risk management system;
• Own Risk and Solvency Assessment (ORSA);
• financial information and projections for at least 3 to 5 years; and
• capital requirements and solvency projections.

Other licenses, authorizations and qualifications

3. What licenses, authorizations or qualifications are required for insurance and reinsurance companies to conduct business?

An authorization to undertake insurance or reinsurance business under Directive 2009/138/EC of the Parliament and Council (the Solvency II Directive) issued either by the CBI or by another EU/EEA member state insurance regulatory authority is the basic requirement.

The CBI operates a licensing regime for Irish branches of third-country firms, but there are relatively few such entities (mostly these are branches of UK insurers/reinsurers that had conducted business in Ireland prior to Brexit). Irish licensed branches of third-country firms are not permitted to avail of the EU/EEA passporting system and cannot therefore transact business on a cross-border basis outside Ireland.

Ireland’s insurance regulatory perimeter rules are strict and there is no overseas person exemption whereby insurers operating in a third country may underwrite occasional Irish risks. What constitutes an Irish risk in this context is not straightforward and expert legal assistance should be sought.

EU/EEA insurance firms can be licensed as life insurance, non-life insurance, reinsurance, captive insurance, captive reinsurance and special purpose vehicles. Within those broad categories, for life and non-life insurers, licenses are issued for specified classes of insurance business and the risks underwritten must fall within the relevant classes.

Officers and directors

4. What are the minimum qualification requirements for officers and directors of insurance and reinsurance companies?

Under corporate law, at least one director of an Irish company must always be a resident of an EEA member state. It is however common for tax planning reasons to require that Irish boards be structured with a significant number of locally resident directors. The CBI also expects to see a reasonable number of Irish resident directors on the boards of insurance/reinsurance companies, and the CBI’s Corporate Governance Requirements for Insurance Undertakings prescribe specific requirements for board composition and the balance thereof between executives and non-executives.

In terms of director qualifications, the primary applicable regime for directors of insurers/reinsurers is the Fitness and Probity Regime (F&P Regime), which was introduced by the CBI in 2010. The F&P Regime designates certain roles within an insurance or reinsurance company as being a Pre-Approval Controlled Function (PCF), which requires an individual to undergo a process of pre-approval with the CBI prior to being able to take up their role. All directors and many senior executives of insurers/reinsurers will be considered PCFs. The CBI’s scrutiny of individuals under the F&P Regime focuses on ensuring that the individuals are competent, capable, honest, ethical and financially sound.

The Central Bank (Individual Accountability Framework) Act 2023 introduced the individual accountability framework and senior executive accountability regime (IAF/SEAR). As part of this, the F&P Regime has been enhanced and expanded. IAF/SEAR requires PCFs of regulated insurers to have in place statements of responsibility that clearly designate them as responsible for aspects of the insurers’ business. Where they fail to take reasonable steps to discharge their specified responsibilities, they may be subject to personal enforcement action by the CBI.

Capital and surplus requirements

5. What are the capital and surplus requirements for insurance and reinsurance companies?

The European Union (Insurance and Reinsurance) Regulations 2015 (the 2015 Regulations) transposed the Solvency II Directive into Irish law, and the capital and surplus requirements are based on EU/EEA standards.

The Solvency II Regulations impose a minimum capital requirement (MCR), which is an amount of eligible, basic own funds. Under the 2015 Regulations, the absolute floor of the MCR varies between €2.7 million and €4 million, depending on the nature of the license that is sought. The actual amount of the MCR is based on a formula set out in the Solvency II Regulations and can be significantly higher than the absolute floor amounts.

The Solvency II Regulations also impose a solvency capital requirement (SCR), which is higher than the MCR and which in practice represents the operating regulatory capital requirement of an insurer/reinsurer. The CBI typically expects Irish insurers/reinsurers to hold a buffer amount over the 100 percent level of the SCR; the level of the required buffer is discussed and agreed as part of the authorization process. Once again, the SCR is calculated based on a formula and process set out in the Solvency II Regulations and is intended to be calibrated to the actual level of risks to which the entity is exposed.

Reserves

6. What are the requirements with respect to reserves maintained by insurance and reinsurance companies?

All insurance and reinsurance obligations towards policyholders and beneficiaries of insurance or reinsurance contracts must, under the Solvency II Regulations, be covered by requisite technical provisions and reserves held in respect thereof within the insurance or reinsurance undertaking.

The Solvency II Regulations, alongside Commission Delegated Regulation 2015/35 (the Solvency II Delegated Regulation) establish the methodology for calculating reserves. Very generally speaking, insurance and reinsurance firms are expected to calculate technical provisions as a combination of the best estimate of liability plus a risk margin. The CBI has published operating requirements for the actuarial functions of regulated re/insurers, which include important provisions relating to the assessment of reserves.

Product regulation

7. What are the regulatory requirements with respect to insurance products offered for sale? Are some products regulated by multiple agencies?

Ireland, in common with other EU/EEA member states, does not impose form and rate filing requirements on insurance products and there is no requirement for an authorized EU/EEA insurer/reinsurer doing business in Ireland to obtain pre-approval before launching a product. Despite this, there is a complex body of Irish law and regulation that needs to be observed by any insurer marketing a product in Ireland, especially where the product is directed at consumers.

Any authorized insurer carrying on business with Irish customers will be expected to adhere to the Central Bank’s Consumer Protection Code (CPC). Certain obligations under the CPC apply only where the insurer deals with consumers, but caution is required here, since the term is defined broadly in the CPC to include some types of small businesses.

The CPC prescribes rules for the sale of insurance products to consumers and other customers. There are pre- and post-sale documentation and transparency requirements, as well as detailed rules relating to premium and refund handling, claims handling and complaints handling. The CBI is currently conducting a review of the CPC and launched a consultation paper in March 2024 on proposed updates and amendments.

Insurers carrying on business in Ireland must also adhere to the European Union (Insurance Distribution) Regulations 2018 (IDRs), transposing Directive (EU) 2016/97 of the Parliament and Council into Irish law. The IDRs impose further obligations relating to insurance documentation, transparency and sale processes. In addition to the IDRs, there are prescribed terms and disclosures that are required to be included in contract documentation for both life and non-life insurance policies under the Solvency II Regulations.

Insurers doing business in Ireland need also to be aware that there are legal rules obliging insurers to observe prescribed procedures when inviting renewals of certain classes of personal insurance contracts and that the practice of differential pricing (known as price walking) is prohibited under CBI regulations.

In addition to specific insurance regulatory requirements, insurance products that are sold or marketed to consumers will need to adhere to adhere to general Irish consumer contract law as it relates to financial services. This includes the:

• Consumer Rights Act 2022;
• Sale of Goods and Supply of Services Act 1980;
• European Communities (Distance Marketing of Consumer Financial Services) Regulations 2004; and
• Consumer Insurance Contracts Act 2019.

The last is particularly relevant since it substantially amended Irish insurance contract law for consumer insurance contracts.

Regulatory examinations

8. What are the frequency, types and scope of financial, market conduct or other periodic examinations of insurance and reinsurance companies?

The CBI’s Insurance Supervisory Division engages in periodic examinations of Irish authorized insurance and reinsurance companies. The frequency, type and scope of examination will be based on the CBI’s internal risk-based framework for the supervision of regulated firms, the Probability Risk and Impact System (PRISM). Under PRISM, firms are categorized by reference to the level of systemic risk they are considered to pose. PRISM categories for firms range from high impact, through medium-high and medium-low, down to low impact. A firm’s categorization will determine the intensity of supervision the firm receives. Examinations by the Insurance Supervisory Division focus on prudential matters, such as capital adequacy, risk management and internal governance.

Separately, the CBI’s Consumer Protection Division oversees the market conduct of regulated financial services providers, including insurers. It also conducts thematic inspections of firms, focusing on matters such as conduct risk, transparency, and protection of customer funds.

There is no prescribed schedule in Irish law for supervisory examinations of insurers/reinsurers.

Investments

9. What are the rules on the kinds and amounts of investments that insurance and reinsurance companies may make?

Insurance and reinsurance companies must invest in accordance with the prudent person principle found in the Solvency II Directive. This mandates that insurers may only invest in assets and instruments whose risks they can properly identify, measure, monitor, manage, control, report and appropriately take into account in the assessment of overall solvency needs. In general, Irish insurers/reinsurers have considerable freedom within the very broad principles set out in the Solvency II Directive to invest their assets and much reliance is placed on the judgement of the Head of Actuarial Function. This investment freedom is seen in practice as an important commercial advantage of establishing insurance operations in Ireland.

Change of control

10. What are the regulatory requirements on a change of control of insurance and reinsurance companies? Are officers, directors and controlling persons of the acquirer subject to background investigations?

The Solvency II Regulations state that the CBI must be notified in writing prior to the acquisition or disposal of a qualifying holding in an insurance or reinsurance company. A qualifying holding is, broadly speaking, a direct or indirect holding in an insurance or reinsurance company that carries 10 ten percent or more of either the capital or voting rights, or that would cause the holder’s total stake to pass beyond certain thresholds.

Notification is normally, but is not required to be, done jointly by both the acquirer and disposer of the interest. There is a prescribed form for notifications that must be completed and submitted to the CBI together with detailed accompanying documentation. It is common, wherever appropriate, to engage informally with the CBI to provide an overview of the proposal in advance of formal submission.

Under Irish law, an acquisition or disposal that is not notified and pre-approved by the CBI is void. The timeline for the process is flexible since the CBI can extend the statutory timeline by making requests for additional documentation. Close contact with the CBI and management of the process on behalf of the parties is therefore important in urgent cases.

As part of the process, any persons that will hold a 10 percent interest or more, directly or indirectly, in the target post-acquisition must be disclosed to the CBI and this can in practice require detailed information regarding substantial shareholders of the acquirer to be provided. Vetting of directors and officers of the acquirer is not automatically required, but if a proposed change of control involves the replacement of any PCFs of the target, or involves the insertion of a new holding company whose directors would be considered PCFs, the new personnel will all need to be pre-approved before any changes to the board and management of the target can take place.

Financing of an acquisition

11. What are the requirements and restrictions regarding financing of the acquisition of an insurance or reinsurance company?

In Irish law, there are few specific limitations on the financing of acquisitions of insurance or reinsurance companies beyond those that would apply to acquisition financing generally. Some sector-specific issues can arise when constructing financier security packages, however. Assets treated as covering policyholder reserves for regulatory purposes are ringfenced for policyholders’ benefit and therefore cannot be the subject of security interests other than for policyholder purposes. No security interests or other rights given to financiers should make them qualifying holders in the regulated entity without the CBI’s pre-approval and, in general, security packages are carefully constructed to avoid this result.

Minority interest

12. What are the regulatory requirements and restrictions on investors acquiring a minority interest in an insurance or reinsurance company?

If an interest is below 10 percent of either capital or voting rights in an insurance or reinsurance company (whether directly or indirectly held) there are no general regulatory restrictions. Such an interest can normally be acquired without regulatory approval. Care needs to be taken in cases of gradual stakebuilding since the 10 percent threshold could be triggered inadvertently.

Foreign ownership

13. What are the regulatory requirements and restrictions concerning the investment in an insurance or reinsurance company by foreign citizens, companies or governments?

Ireland is implementing a general foreign investment screening regime under the EU Investment Screening Regulation. This was signed into law in October 2023 as the Screening of Third Country Transactions Act 2023. The Irish Department of Enterprise, Trade and Employment has indicated that they anticipate the screening regime will become operational in Q2 2024.

Ireland applies EU and UN sanctions and any investment or other transaction in breach of those sanctions is prohibited.

Any investment, domestic or foreign, in an insurance or reinsurance company is subject to the CBI pre-approval of qualifying holdings process described above.

Group supervision and capital requirements

14. What is the supervisory framework for groups of companies containing an insurer or reinsurer in a holding company system? What are the enterprise risk assessment and reporting requirements for an insurer or reinsurer and its holding company? What holding company or group capital requirements exist in addition to individual legal entity capital requirements for insurers and reinsurers?

Group supervision of Irish insurers/reinsurers generally follows the EU group supervision model. There are complex rules set out in the Solvency II Regulations to identify insurance holding companies, mixed financial holding companies and mixed activity insurance holding companies. Where such a holding company of an insurer is incorporated in Ireland, the CBI will generally be the insurance group supervisor. The insurer and the relevant holding company will then be subject to supplementary supervision by the CBI in accordance with the Solvency II Regulations.

Where an Irish insurer/reinsurer forms part of a financial conglomerate with other financial services firms (as defined in the European Communities (Financial Conglomerates) Regulations 2004, implementing the EU Financial Conglomerates Directives), a different system of supplementary supervision will apply. A coordinating EU regulator must be appointed for the purposes of financial conglomerate supplementary supervision, according to rules laid down in the Directives. Where an insurer forms part of a banking group, consolidated supervision under the EU Capital Requirements Directive and Capital Requirements Regulation is likely to apply with the relevant banking supervisor likely to exercise supplementary oversight of the group.

The precise scope of the reporting requirements and oversight arising under group supervision for an Irish insurer/reinsurer will therefore depend on the specific group supervision regimes applicable.

Reinsurance agreements

15. What are the regulatory requirements with respect to reinsurance agreements between insurance and reinsurance companies domiciled in your jurisdiction?

There are relatively few specific legal requirements or restrictions for outwards reinsurance agreements placed by Irish cedents. In principle, such reinsurances would need to be placed with an EEA authorized re/insurer, but where the EU has recognized a third-country’s supervisory regime as equivalent for Solvency II purposes, Irish cedents can reinsure with reinsurers from those third countries on the same basis. The Solvency II Regulations do not permit the CBI to refuse credit for a reinsurance contract between an Irish cedent and an EEA authorized reinsurer on grounds directly related to the financial soundness of the reinsurer.

Specific guidance applicable to reinsurance arrangements was formerly issued by the CBI to Irish cedents, but this was withdrawn from 2020. Where the reinsurance arrangement is intra-group, the CBI has published Guidance for Re/Insurers on Intragroup Transactions and Exposures (January 2023) which is relevant to consider.

Ceded reinsurance and retention of risk

16. What requirements and restrictions govern the amount of ceded reinsurance and retention of risk by insurers?

There are no explicit restrictions in the Solvency II Regulations on the ability of cedents to reinsure risk, such that, at least in theory, Solvency II permits 100 percent fronting. In practice, the CBI is wary of pure fronting operations and expects cedents to retain some level of risk, covered by reserves held within the entity.

Collateral

17. What are the collateral requirements for reinsurers in a reinsurance transaction?

There are no explicit collateral requirements for reinsurers in a reinsurance transaction in Ireland. The level and nature of collateral requested or provided is dependent on the parties to the reinsurance agreement. The Solvency II Delegated Regulation deals with the effective valuation of collateral and its impact on technical reserve requirements but does not oblige reinsurers to adhere to specific collateral requirements.

Credit for reinsurance

18. What are the regulatory requirements for cedents to obtain credit for reinsurance on their financial statements?

Under the Solvency II Regulations, a cedent can take credit in respect of a contract of reinsurance against its technical reserve requirements only to the amount that can be expected to be recovered under the contract of reinsurance when using the calculation methods that are specified in Regulations 83–93. In addition, these calculations should take account of the potential timing differences between recoveries and direct payments, and the result from that calculation should be adjusted to take account of any expected losses due to default of the counterparty.

Insolvent and financially troubled companies

19. What laws govern insolvent or financially troubled insurance and reinsurance companies?

In the very rare cases where Irish insurers/reinsurers have become insolvent in recent decades, the insolvency procedure applied has been administration under the Insurance Act 1983, a process specifically designed for insurers/reinsurers, rather than any general corporate insolvency procedure. An administrator is appointed by the High Court but a petition in respect thereof must be presented by the CBI. Once an administrator has been appointed, the company is under court protection, and in practice its affairs will then be conducted to maximize the payout to policyholders.

Irish re/insurance companies remain subject to all general corporate insolvency regimes, such as voluntary and compulsory winding up and to examinership, but these processes are rarely applied.

In Ireland, the CBI has already issued regulations in 2021 requiring pre-emptive recovery planning by Irish insurance and reinsurance companies. Under these regulations, all insurance and reinsurance companies in Ireland are required to prepare and maintain recovery plans, and some are obliged to submit these plans annually.

Like banks, all EU insurers/reinsurers will likely become subject to recover/resolution planning requirements, which will constitute a further radical change to the landscape for financially troubled insurers/reinsurers going forward. The EU institutions are currently (March 2024) adopting an Insurance Recovery and Resolution Directive (IRRD) in this respect, which is hoped to be finalized in 2024. IRRD will, if adopted, impose a specific regime for recovery and resolution planning for all EU insurers/reinsurers and grant extensive powers to national resolution authorities to permit them to take steps to resolve financial difficulties arising.

Claim priority in insolvency

20. What is the priority of claims (insurance and otherwise) against an insurance or reinsurance company in an insolvency proceeding?

Under the Solvency II Regulations, an Irish insurer/reinsurer needs to designate assets to cover its policyholder reserves. With respect to those assets, other than winding-up expenses, insurance claims take absolute precedence over any other claims on the insurance undertaking, including any claims normally accorded preference by law (such as tax and social security claims).

Intermediaries

21. What are the licensing requirements for intermediaries representing insurance and reinsurance companies?

All insurance intermediaries operating in Ireland must either be registered with the CBI or with a designated supervisory authority in another EEA member state under the EU Insurance Distribution Directive (Directive (EU) 2016/97). Such a registration then allows intermediaries to carry out the activity of insurance distribution in Ireland, including any provision of advice in relation to any insurance products.

INSURANCE CLAIMS AND COVERAGE

Third-party actions

22. Can a third party bring a direct action against an insurer for coverage?

There is no general third-party rights regime in Irish contract law; therefore, Irish contract law does not generally afford a person who is not a party to an insurance contract any legal rights of action against the insurer.

There are, however, certain exceptions.

The Consumer Insurance Contracts Act 2019 (CICA 2019) confers a statutory entitlement for third parties to claim against insurers where an insured person incurs a liability to a third-party and either:

• the insured person is dead, cannot be found or is insolvent; or
• it is just and equitable to do so.

Section 76(1) of the Road Traffic Act 1961 and section 62 of the Civil Liability Act 1961 provide for further exceptions to the general rule. Section 62 applies to benefit claimants against insureds under policies of liability insurance where the insured either dies, is wound up or is dissolved. Section 76 facilitates a claimant in a road traffic case, who has recovered judgment against the owner or user of the vehicle who is covered by a policy of insurance, to enforce the judgment directly against the insurer. Finally, section 7 of the Married Women’ Status Act 1957 allows a spouse or child named as a beneficiary to a life assurance policy to enforce the policy directly.

Third parties can also acquire enforcement rights under an insurance contract under the laws of agency or trust, or alternatively on an assignment of rights under the policy by the original insured.

Late notice of claim

23. Can an insurer deny coverage based on late notice of claim without demonstrating prejudice?

The general position is that late notification does not operate as a complete bar to a claim unless it is expressed as a condition precedent to the insurer’s liability. Irish insurers therefore will usually set out the consequences of late claim notification in the insurance policy itself. Very explicit language should be used if the insurer’s intention is that late notification should operate as a bar to a claim.

In Moloney v Cashel Taverns Limited (In Voluntary Liquidation) & Anor [2020] IEHC 658] the policy obliged the insured to notify claims promptly, but the claim was only notified 17 months after the incident had occurred. The Irish High Court held that, in the circumstances, the insurer was justified in refusing indemnity to the insured as the insured had been fully aware of the incident giving rise to the claim throughout but had failed to notify without reasonable excuse. The insurer was not required to demonstrate that it had suffered prejudice.

For consumer insurance contracts, Irish law has now been amended under CICA 2019 to provide that a consumer insured must notify an insured event within a reasonable time; however, where there is a failure to comply with a specified notification period, the insurer must show prejudice before being entitled to refuse cover.

Wrongful denial of claim

24. Is an insurer subject to extra-contractual exposure for wrongful denial of a claim?

Irish law does not currently recognize the concept of bad faith damages against insurers for wrongful denial of claims or for delay in settling claims. Where the insured can demonstrate that specific losses have resulted due to the insurer’s wrongful breach, subject to applying standard principles of contractual remoteness, those losses can in principle be claimed.

Defense of claim

25. What triggers a liability insurer’s duty to defend a claim?

There is no general duty on liability insurers to defend claims against insureds and the extent of the insurer’s responsibility to do so depends on the terms of the contract in question.

Indemnity policies

26. For indemnity policies, what triggers the insurer’s payment obligations?

In general, the insurer’s obligation to indemnify arises when the relevant loss occurs (i.e, when the event constituting the proximate cause of the loss acts upon the insured subject matter). Subject to any applicable notification and proof of loss requirements being complied with, the insurer would be expected to pay the insured’s claim within a reasonable time thereafter. The express terms of the policy may specify alternative time periods for payment.

Incontestability

27. Is there a period beyond which a life insurer cannot contest coverage based on misrepresentation in the application?

In Irish insurance law, there is no specific incontestability period (separate from the normal principles of limitation of actions) beyond which a life insurer cannot contest coverage based on misrepresentation in the application for coverage. Note however that for contracts entered into with consumers, insurers’ rights to avoid coverage or contest claims based on misrepresentation are subject to limitations under CICA 2019.

Punitive damages

28. Are punitive damages insurable?

In Ireland, there is no legal framework explicitly prohibiting insurance for punitive damages. It is, therefore, a matter for insurers to choose to expressly exclude punitive damage from cover.

Excess insurer obligations

29. What is the obligation of an excess insurer to ‘drop down and defend’, and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?

There is no general obligation on an excess insurer to pay a claim if the primary insurer is insolvent and the primary limit has not been fully exhausted. The only situations where an excess insurer is obliged to ‘drop-down and defend’ is when there is an express clause in the policy that places an obligation on an excess insurer to ‘drop down’ and act as a primary insurer in certain situations.

Self-insurance default

30. What is an insurer’s obligation if the policy provides that the insured has a self-insured retention or deductible and is insolvent and unable to pay it?

Where an insured is insolvent and unable to pay a self-insured retention or a deductible, there is no obligation on the insurer to pay the retention or deductible (subject to the policy terms and conditions). Insurers are generally obliged to pay the claim value net of the retention or excess payment unless there is an express condition in the policy that states that payment of the excess is a condition precedent to coverage under the policy.

Hu v Duleek Formwork Ltd (in liquidation) and Aviva Direct Ireland Ltd [2013] IEHC 50 is an example of an Irish case where payment by the insured of an excess was a condition precedent to coverage under the policy and the excess had not been paid. As a result, the court held that the third party who brought the action against the insurer was not entitled to remedy the breach by discharging the excess.

Claim priority

31. What is the order of priority for payment when there are multiple claims under the same policy?

Subject to the terms and conditions of the policy, unless the insurer admits liability, there is no prescribed order of priority at law for payment of multiple insured claims. All such claims constitute general unsecured liabilities of the insurer. It would be important in such circumstances to also consider whether the multiple claims should be aggregated for the purposes of any applicable sub-limits under the policy.

Allocation of payment

32. How are payments allocated among multiple policies triggered by the same claim?

Where a policyholder has multiple policies that potentially respond to the same claim circumstance, it will be necessary to consider how those policies interact with each other and which policy responds first. This will require interpretation of the policy provisions relating to loss allocation and aggregation. Ireland has no specific legislation in this respect.

Where an insured has double insurance, an insured cannot recover for the same loss twice. However, it can generally decide which policy or policies to claim under and in what proportions. To account for the potential unfairness for one insurer in having to satisfy a greater share of a claim for which another insurer is equally liable, the law provides (pursuant to principles of equity) for a right of contribution between insurers.

Disgorgement or restitution

33. Are disgorgement or restitution claims insurable losses?

Losses are generally insurable under Irish law except where there is a public policy reason against this (e.g, in the case of criminal fines). In Ireland, it has not yet been considered by the courts or legislature whether restitutionary damages or disgorgement of profits can be insurable. Tentatively, we suggest that there should be no public policy reason why restitutionary damages at least could not be insured.

Definition of occurrence

34. How do courts determine whether a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?

There are no reported Irish court decisions on the interpretation of aggregation clauses in insurance contracts. English court decisions are persuasive but not binding in Ireland. The Irish courts will therefore determine whether one event can result in multiple claims under a particular policy or whether all losses arising from a single event must be aggregated into a single claim by examining the terms of the policy itself.

Rescission based on misstatements

35. Under what circumstances can misstatements in the application be the basis for rescission?

In Irish common law, insurance contracts are contracts of utmost good faith and as a result the insurer can avoid the policy for misrepresentation or non-disclosure even where the misstatement in question is innocent, provided that the insurer can demonstrate that the misstatement in question was material to its decision-making process. This rule previously led to harsh consequences and has been substantially relaxed for consumer insurance contracts.

CICA 2019 recognizes an insurer’s right to refuse to pay a claim and avoid a contract of insurance where an answer given by a consumer involves a fraudulent misrepresentation or where the conduct of a consumer involves fraud of any kind. A fraudulent misrepresentation is a representation that the consumer knows to be false or misleading, or consciously disregards whether it is false or misleading.

Where the answer given involves a negligent misrepresentation, the remedy available to insurers shall reflect what the insurer would have done, had it been fully aware of the facts, and shall be proportionate (for example, it might be an increased premium rather than a declinature, depending on the circumstances). Insurers cannot avoid a contract of insurance where a consumer makes an innocent misrepresentation.

REINSURANCE DISPUTES AND ARBITRATION

Reinsurance disputes

36. Are formal reinsurance disputes common, or do insurers and reinsurers tend to prefer business solutions for their disputes without formal proceedings?

Reinsurance disputes are very uncommon in Ireland. Many Irish cedents reinsurance wordings are governed by non-Irish law and subject to non-Irish jurisdiction, such that in practice, any dispute thereunder would not play out in an Irish court. Reinsurers and cedents also rarely resort to formal dispute resolution procedures to resolve issues arising. Arbitration is a more common venue for resolution of such reinsurance disputes as do arise. Ireland has a modern body of procedural arbitration law which among other matters adopts the UNCITRAL Model Law on International Commercial Arbitration.

Common dispute issues

37. What are the most common issues that arise in reinsurance disputes?

Reinsurance disputes in Ireland are rare. There are no emerging trends or hot topics.

Arbitration awards

38. Do reinsurance arbitration awards typically include the reasoning for the decision?

The Irish Arbitration Act 2010 implements the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. It provides that an award made by an arbitrator must be in writing and shall state the reasons on which it is based unless the parties agree otherwise.

Power of arbitrators

39. What powers do reinsurance arbitrators have over non-parties to the arbitration agreement?

In the absence of an agreement with the third party, an arbitrator does not have the power to join a third party to an arbitration. Under the Arbitration Act 2010, an arbitrator has the power to consolidate multiple arbitral proceedings, including where the proceedings involve third parties, however, this can only happen in circumstances where all the parties’ consent to the consolidation.

Appeal of arbitration awards

40. Can parties to reinsurance arbitrations seek to vacate, modify or confirm arbitration awards through the judicial system? What level of deference does the judiciary give to arbitral awards?

In Ireland, the High Court has the jurisdiction to appeal or set aside an arbitration award. Pursuant to section 23(1) of the Arbitration Act 2010, an award made by an arbitral tribunal under an arbitration agreement is enforceable by action or by leave of the High Court, in the same manner as a judgment or order of that court and with the same effect.

The High Court must be satisfied that the applicant has proved a ground for setting aside the award. In Ireland, the grounds to set aside an award are discretionary in nature. Under the UNCITRAL Model Law, which was incorporated by the Arbitration Act 2010, an award made by an arbitrator can be challenged, however, the grounds that allow for such a challenge are very limited. In practice, for commercial disputes, the courts will give considerable respect to arbitral awards and will adhere strictly to the limits set out in the UNCITRAL Model Law.

REINSURANCE PRINCIPLES AND PRACTICES

Obligation to follow cedent

41. Does a reinsurer have an obligation to follow its cedent’s underwriting fortunes and claims payments or settlements in the absence of an express contractual provision? Where such an obligation exists, what is the scope of the obligation, and what defenses are available to a reinsurer?

In the absence of express language to the contrary, we think that an Irish court properly considering the issue would imply ‘follow the settlements’ principles into a reinsurance contract that is silent as to the basis of the reinsurer’s obligations. There are no reported Irish cases where such issues have arisen, but we believe that the Irish courts would also follow English case law on the interpretation and extent of the follow the settlements obligation.

Good faith

42. Is a duty of utmost good faith implied in reinsurance agreements? If so, please describe that duty in comparison to the duty of good faith applicable to other commercial agreements.

Ireland, like many jurisdictions, recognizes the duty of utmost good faith in insurance contracts. The duty requires the insured to disclose to the insurer all information of which it is or ought to be aware that a prudent insurer would wish to know when deciding whether to underwrite the risk and if so at what premium. This duty of utmost good faith has been modified for consumer insurance contracts under CICA 2019 but remains in place for commercial insurance contracts. Unlike in many civil code jurisdictions, there is no general contractual duty of good faith that applies across other forms of commercial agreements. The same unmodified duty of ‘utmost good faith’ applies to contracts of reinsurance, and we believe that, if the matter arose before an Irish court, it would likely apply similar principles to those applied in English case law to establish the extent of the duty.

Facultative reinsurance and treaty reinsurance

43. Is there a different set of laws for facultative reinsurance and treaty reinsurance?

In Ireland, there is no legislation or case law that distinguishes between facultative reinsurance and treaty reinsurance.

Third-party action

44. Can a policyholder or non-signatory to a reinsurance agreement bring a direct action against a reinsurer for coverage?

As mentioned above, Ireland has no general third-party rights in contracts regime. Therefore, under Irish law, a policyholder or a non-signatory to a reinsurance agreement generally cannot bring a direct action against a reinsurer for coverage. ‘Cut-through’ clauses are sometimes included in reinsurance wordings but under Irish law, the enforceability of these has yet to be litigated.

Insolvent insurer

45. What is the obligation of a reinsurer to pay a policyholder’s claim where the insurer is insolvent and cannot pay?

Contracts typically include clauses requiring the reinsurer to settle the cedent’s claims without any reduction based on the cedent’s insolvency and such clauses should be enforceable by the cedent’s insolvent estate. There is generally no obligation on the reinsurer to pay the underlying policyholder directly, and payment must therefore be made through the cedent.

Notice and information

46. What type of notice and information must a cedent typically provide its reinsurer with respect to an underlying claim? If the cedent fails to provide timely or sufficient notice, what remedies are available to a reinsurer and how does the language of a reinsurance contract affect the availability of such remedies?

In Ireland, the type of notice and information that a cedent (primary insurer) must provide to its reinsurer regarding an underlying claim is typically governed by the terms and conditions of the reinsurance contract between the parties. The reinsurance contract will generally outline the specific requirements for notice and information sharing and may include ‘claims control’ or ‘claims co-operation’ language under which the reinsurer is entitled to participate in the conduct of the claim defense.

Allocation of underlying claim payments or settlements

47. Where an underlying loss or claim provides for payment under multiple underlying reinsured policies, how does the reinsured allocate its claims or settlement payments among those policies? Do the reinsured’s allocations to the underlying policies have to be mirrored in its allocations to the applicable reinsurance agreements?

There is no specific law or regulation that governs the allocation of reinsurance settlement amounts by cedents. In principle, all reinsurance recoveries form part of general claim reserve assets and the reinsured is not required to allocate those recoveries to specific underlying reinsurance claims.

Review

48. What type of review does the governing law afford reinsurers with respect to a cedent’s claims handling, and settlement and allocation decisions?

Irish law does not provide any specific types of review rights in favor of the reinsurer and the reinsurer’s rights will depend on the terms of the reinsurance agreement itself (e.g, whether ‘follow the settlements’, ‘loss settlements shall be binding’ or similar language applies). In principle, even in the absence of specific language to this effect, we would expect an Irish court to grant reinsurers the right to take reasonable steps to satisfy themselves regarding the legitimacy of a cedent’s claims handling, settlement, and allocation decisions within the context of the reinsurance agreement.

Reimbursement of commutation payments

49. What type of obligation does a reinsurer have to reimburse a cedent for commutation payments made to the cedent’s policyholders? Must a reinsurer indemnify its cedent for ‘incurred but not reported’ claims?

In Ireland, the obligation of a reinsurer to reimburse a cedent for commutation payments made to the cedent’s policyholders and the obligation to indemnify the cedent for incurred but not reported claims would generally depend on the specific terms and provisions of the reinsurance agreement between the reinsurer and the cedent.

Extracontractual obligations (ECOs)

50. What is the obligation of a reinsurer to reimburse a cedent for ECOs?

Irish law does not provide any specific rule regarding ECOs. The obligation of a reinsurer to reimburse a cedent for ECOs would generally depend on the specific terms and provisions of the reinsurance agreement between the reinsurer and the cedent. The reinsurance agreement will govern the scope of coverage and the obligations of the reinsurer.

UPDATES & TRENDS IN INSURANCE AND REINSURANCE IN IRELAND

Key developments

51. Are there any emerging trends or hot topics in insurance and reinsurance regulation in your jurisdiction?

Recent important regulatory topics in Ireland’s large domestic and international insurance market include the following.

Sanctions

The Central Bank of Ireland (CBI) has taken an interest in Irish insurers/reinsurers’ arrangements for compliance with EU and international sanctions imposed as a result of Russia’s invasion of Ukraine and has emphasized the importance of insurers/reinsurers ensuring that their systems and processes in this respect are robust.

Consumer Focus

As mentioned above, the CBI commenced its consultation process on the review of its Consumer Protection Code in 2023. A detailed consultation paper was published in March 2024, and the responses to this will form a part of the CBI’s increased focus on consumer issues in the near future.

Consolidation

From the larger global insurers to local brokers, there has been a considerable amount of deal activity over the last few years. This has been driven by an attempt to increase firms’ economies of scale, to better equip them to deal with turbulence in financial markets and increasing regulation costs. Ireland has seen considerable consolidation activity, especially in the broker market.

Individual Accountability

Implementation of the CBI’s IAF/SEAR has already commenced, and the rollout of the new regime is set to substantially conclude by July 2024. Similar to the United Kingdom’s Senior Managers Regime, the IAF/SEAR is intended to require firms to set out clearly where responsibility and decision-making lie within the firm’s senior management. The IAF/SEAR also introduces a new set of conduct standards and a new certification requirement for senior management in certain insurance and reinsurance firms.

ESG

The CBI published a consultation paper in 2023 titled ‘Guidance for (Re)Insurance Undertakings on Climate Change Risks’. The CBI made it clear that it expects insurers to consider the impact of climate change risk holistically, with the creation of a baseline climate change scenario. This is a part of a trend whereby environmental, social and corporate governance is beginning to become very important for the future planning of insurance and reinsurance firms, with an increasingly socially conscious market taking note too.

Operational Resilience

Re/insurers should by now be in full compliance with the CBI’s Cross-Industry Outsourcing Guidance and Cross-Industry Operational Resilience Guidance, both published in December 2021, as well as with the Solvency II outsourcing regime. Re/insurers will in 2024 need to take steps to secure compliance with the EU’s Digital Operational Resilience Act (DORA) (Regulation (EU) 2022/2554) which will generate a particular focus on cyber-security and resilience.

* The information in this chapter was accurate as of April 2024.

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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

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